By complaining that state and federal tax hikes are forcing him to make "drastic changes," Phil Mickelson quickly became the poster boy for conservatives and liberals alike. The former said Mickelson epitomizes what happens when lawmakers try to fix their budget problems by soaking the rich. The latter said Mickelson should stop whining and hire a better accountant.
I'm with Deadspin on this issue -- it's hard to imagine someone having trouble adjusting to $24 million in after-tax income.
But regardless of how you feel about "Lefty" (who sounded more like a Righty on this issue), he showed good form (pardon the pun) when he apologized Monday for airing his financial complaints in public. He didn't pretend he was misquoted or misunderstood; he simply said these issues were personal matters and should stay that way.
I also think there are a few lessons to be drawn from this -- some for liberals, some for conservatives. For the former, Mickelson's comments are a reminder that changes in tax law change behavior. Raising taxes on labor discourages people from working. Few breadwinners can afford to quit just because they don't like to share their earnings with the government. However, in an increasingly mobile society and information-based economy, a lot more of them can take their talents to South Beach -- or anywhere else with low tax rates.
California policymakers might argue that their hands are tied by Proposition 13's limits on property taxes, forcing the state to rely on higher income taxes to fill the hole left in school district and local government budgets. But income taxes aren't the only source of revenue; it's just easier to get voters to approve a tax hike that hits mainly the wealthy than one that spreads the burden more evenly. The California income tax code was progressive before Proposition 30 raised Mickelson's rates by 3 percentage points; it's extremely progressive now.
To many liberals, that's a feature, not a bug. But the more the state's tax base depends on high-income earners, the more vulnerable it will be to the ups and downs of Wall Street and the whims of mobile millionaires like Mickelson.
On the other hand, Mickelson's estimate that his combined tax bill was 62% or 63% is impossibly high. He probably made the common mistake of conflating marginal tax rates with overall taxation. California's top tax rate of 13.3% applies only on the dollars earned after the first $1 million for joint filers. Similarly, under the federal tax deal struck this month, the top rate of 39.6% kicks in only after the first $450,000 in taxable income. Oh, and by the way, the extra taxes Mickelson pays to California all get deducted from his income for federal purposes.
The Congressional Budget Office calculated that after deductions, exemptions and other tax-minimization techniques, the typical member of the 1% paid 24.2% of his or her earnings in federal income taxes in 2000, the last year before the Bush-era tax cuts lowered the top marginal rate from 39.6% to 35%. Throw in all other federal levies, such as self-employment and excise taxes, and the total federal burden rose to 33%.
That's still a big number for someone like Mickelson, who was (according to Forbes) the world's seventh-highest-paid athlete in 2012. The magazine reported that the vast majority of Mickelson's earnings came from product endorsements. The question for the golfer now is whether sponsors will shy away from a multimillion-dollar celebrity who balks at paying his tax bill.
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